Silver price gives competition to gold rally as industries fuel demand

At least 2,000 tonne of silver was imported in the April-June quarter, compared to 10 tonne of gold.

Silver is fast catching up with the rally in the gold during this calendar year and, in fact, has outperformed the yellow metal since the start of this financial year. 

In the Indian spot market, silver has turned most expensive since September 2013. On the MCX, September futures of silver is trading above Rs 53,000 a kg. In Mumbai’s Zaveri Bazar, the metal on Wednesday closed at Rs 52,195 a kg (Rs 840 costlier than Tuesday) — the highest in seven years. The all-time high price of silver is Rs 75,000 a kg, recorded in April 2011.

With 3 per cent goods and service tax, the wholesale price of silver adds up to Rs 53,760. Gold in the physical market price closed at Rs 49,053 per 10 gram.  In the international market, silver was trading at $19.30 an ounce and gold at $1,807.93 an ounce. 

In India, the price of silver has increased 33.2 per cent since the beginning of April and 7.4 per cent only in July. However, year-to-date, the price of gold has surged 25.5 per cent and silver is up 11.9 per cent.

In the April-June quarter, 2,100 tonne of silver was imported, matching the year-ago figure and almost double of that in the March quarter, according to a market expert. The gold import was just a little over 10 tonne in the June quarter. 

Gold had been giving good returns but silver remained laggard because of weakness in industrial economies. More than half the silver output is for industrial purposes, led by the solar sector. Industrial commodities, such as base metals, have witnessed a sharp rally over the past three months and the price of silver has also started reflecting that upswing now. The gold-to-silver ratio, which represents relative price movements between the two, was 134 last February, reflecting weakness in the white precious metal. But now, it has improved to 93-94 and this figure is slated to reduce even further as silver gets stronger.

 

 

Ajay Kedia, director, Kedia Advisory, said: “We have already seen the price of gold surging due to Covid-19 concerns and the threat of a recession. Silver has dual benefits — it has properties of bullion and also base metal. With global stimulus, which should help generate growth in industrial production and economic activities, silver will get support. Silver demand is closely tied to industrial production, accounting for 50 per cent of its demand.”

Silver is also known as “Poor Man’s gold” when interest in precious metals surges (as it is now). A lot of investors historically diversify part of their gold purchases with silver. 

“Silver can outperform gold because it is a smaller market and moderate relocation of investment into it can lead to a material price spike. A break above $20 can see prices moving towards $26 internationally,” said Kedia. 

The Silver Institute, a premier body for the silver industry, in its latest study published late last week, said: “Retail and institutional inflows into silver ETPs (exchange-traded products) have been impressive this year. As of June 30, global holdings reached a fresh all-time high of 925 million ounce or 26,223 tonne, which is roughly 14 months of mine supply. 

ETP growth in the first half 2020 of 5,556 tonne comfortably surpassed the highest annual inflow of 4,224 tonne set in 2009. North American-listed funds accounted for some 90 per cent of ETP inflows since March.”